June 2016 Report: Value of Financial Shock Absorbers

Numbers for June

Once per month, I report on our debt-reduction and savings progress. In terms of numbers June was not stellar. Our goal each month is to put as much as possible against our mortgage up to a maximum payment of $3,000. As for savings, our goal for last month was to top off our emergency fund so that it would be 100% full.

What actually happened was that we put $2,200 against our mortgage (down to $104,000 now), and we didn’t save anything. We would have made a smaller mortgage payment if we’d known what was ahead of us.

Real story for June

The numbers aren’t the real story. The real story is that in June, we hit a significant bump in the road.

DH is self-employed. He’s been running a franchise successfully for seven years now. Let me say that again: “He’s been running a franchise successfully for seven years now.” Such a short sentence. It can’t convey the “Hallelujah!” inherent in it for us. DH’s successful business is the happy, happy resolution to years of career uncertainty and under/unemployment. It will be a long time before I take it for granted.

Although DH has a lot of autonomy in his work, certain things are standard in the company and otherwise beyond his control. For the most part, no complaints. In fact, it’s been a huge help to have a structure and network in place. But in June, there was a company-wide glitch that lasted a bizarrely long time and that had the impact of butchering business.

DH had absolutely no control over this business-stopping “technical difficulty” (sorry I have to be so vague about it), but it had a staggering control over him. It was something that blindsided all concerned, and it brought home to us the fact that there are no guarantees when it comes to DH’s work and income.

The crisis did eventually pass, but while it lasted, it was the focus of just about every conversation that DH and I had. What if it lasted for several months? What options did DH have? How would we absorb a possible huge loss of income?

DH carried an understandable amount of stress for those couple of weeks. But I carried almost none.

Shock . . . but a smooth ride

Let me say that again: “I carried almost none.”

A little over 3 years ago, still in the first 12 months of our journey out of debt, DH had slow business through the spring. Although I knew objectively that his income varied, that brief period of low income set me off. I wrote a post at the time about debt and depression, and how women in particular feel financial angst. “Dave Ramsey notes the same gendered difference in response to financial stress in his book, The Total Money Makeover. ‘Somewhere down inside the typical lady is a ‘security gland’, and when financial stress enters the scene, that gland will spasm’ (Ramsey, p. 144). My ‘security gland’ was in a spasmodic state for the better part of six years, so there is a trigger effect now, even though logic and perspective don’t justify it.”

Since that time, I’ve learned to go with the flow when it comes to our variable income. This past May, for instance, was possibly DH’s lowest income month ever, and that was completely OK. What happened in June was of a different order of magnitude. There was no “going with the flow”. There was no flow to go with. It was a random anomaly that we had no power to resolve.

And it didn’t stress me.

I was actually able to play the role of stabilizing spouse. DH’s day-to-day life was dominated by this crisis, but mine wasn’t. And so I listened, empathized, acted as sounding board, offered perspective, and confirmed our strategy. We’d batten down the hatches and be ready to respond to whatever was going to come our way. Ultimately, if worse came to worst, we’d close up shop and move. Significant, but nothing to get my “security gland” in a spasm.

Financial shock absorbers

So why the difference? Why were May and June of 2016 not difficult for me when March and April of 2013 were so depressing? I can think of 3 reasons:

Less debt. In the spring of 2013, our business debt sat at about $65,000. Now, we have no business debt. Our mortgage debt was also about $43,000 more than it is now.

More savings. In the spring of 2013, we had a mini-emergency fund of about $1,000. Now we have an almost fully funded big emergency fund that would see us through 6 months of expenses if we lost an income.

Different attitude. “As you pay off your debt, you’ll realize it wasn’t about the money at all.” This statement, from Ramsey as well as other sources, annoyed me at first, but I’ve found it to be true. In 2013, the prospect of having to sell our house because we couldn’t afford it was mortifying. Now, there’s no ego obstacle to such a move.

I hope that “normal” will last through July – and many years to come for that matter. But if it doesn’t – if we hit more bumps in the road – I’m so glad we have these financial shock absorbers in place.

Would you say that you have “financial shock absorbers” in place? What is the most significant one for you? Your comments are welcome.

prudencedebtfree

I’m sorry to hear his work is at a standstill for whatever reason right now. 🙁 I love how you compare a year ago to today though and how you feel. I know exactly how you feel as I’m having to spend some money on emergencies lately, but if it was the same situation last year I’d be FREAKING out! It goes to show you how much financial preparedness is so essential to reducing stress. Although, it know it’s tough for some people to get to that point! Sending you good thoughts!

Thank you, Tonya. The “glitch” did get resolved last week, so normal is back again. I’m sorry to hear that you have emergency expenses now, but how great that you’re in a position to deal with them! I think the problem some people have with preparedness is that they need to know, “Prepared for what?” But no one can know what the unexpected will be for them. It’s just great advice to accept: Save up an emergency fund for the unexpected – because it will happen in some form or another.

I remember what it was like when my own dear hubby’s business that he subcontracted for went bust back in ’89. It was a terrible blow and we were in so much debt already. We had no financial education so we used credit as an emergency fund and we were maxed out totally. If we’d been in your position with your PF knowledge and the way you guys applied it, I know we would have been so much happier and things would have worked out so differently. Best wishes going forward, Ruth. Thank God you were led to Dave Ramsey and all of the other PF bloggers’ wisdom! 🙂

I do thank God for that! I often wonder if we would even have been remotely interested in that kind of wisdom earlier on. It was an area of stubborn denial for us both – for me in particular – and it seems we needed to hit bottom before we humbled up and listened to what seemed “boring” financial advice. It’s great to be in this position now. You are not the only people to have used credit cards as an emergency fund, Kay – that’s for sure. You are in a remarkable position now, and with all that you’ve learned, I believe you and Rod will handle it brilliantly : )

Wow sorry to hear about the glitch. I know you have been vague about DH’s work. No way for him to try and drum up business on his own? Seems odd to me that you have to rely on the mother-ship for these things. I think we have all the same financial shock absorbers as you do now. Less debt, more savings, and such a better mindset.

Those are all very good questions about DH’s work, Brian – and believe me, we’ve talked about them. There will likely be changes in the way he does things in the years to come. He’ll just have to sound out when. Your financial shock absorbers have certainly served you well!

I’m sure this was a very stressful situation for your husband and it’s great you were able to help him through it by not stressing at all!

We have all three of the financial shock absorbers you do. The attitude is probably the most significant (with savings in at a close second). Knowing that there are always options and solutions to whatever may come our way helps tremendously.

Interesting that you put attitude first, Amanda. I hadn’t thought of ranking their importance, but I think I’d rank them as they are actually listed, with “Less Debt” first. Maybe it’s because we carried more debt through a less certain financial time than you? Hmmm – that could be a whole other post. Thanks : )

Absolutely – I’m all about the life shock absorbers. For money, we use our credit cards for every expense that we can charge which buys us a little time on having to pay out the money and also protects our purchases for up to a year.

Then if we have sudden expenses that must be paid in cash and NOW, we have our almost too large cash savings, CDs we can break with very little penalty, investments that I can sell if we have to.

Looking at it from a career/income perspective, I’m always on the lookout for new skills and opportunities to experience different things so that when I’m ready or if my industry / company tanks (as it is prone to doing), I’m not reliant on just getting another job. At the moment we’d likely need to get another job but I don’t want to think “job loss? END OF THE WORLD!”

I’d like to think “job loss? a shame. what’s next?”

And if it really comes down to it, we can sell our real estate and tap into our retirement accounts if we must.

Since I slayed the debt from my parental family, the only debt I’ve taken on since then has been mortgage debt and we’re paying that down as quickly as we can while still investing for income. It’s all about keeping balance so that, like if you’re on a ship and it lists suddenly, your hands (resources) are free to help you adjust quickly.

And of course, we are working on our estate plan so that if the worst should happen, this doesn’t all go to waste and our JuggerBaby will be taken care of and our money will be preserved to take care of her needs.

Wow! It sounds like you are in a FABULOUS position to absorb any possible financial shock, Revanche. I suspect that before too long, you’ll be in a position to say, “Job loss? I’ll be open to working if we find the right opportunity, but in the mean time, we’ll live off of our investments.” I suspect that “slaying the debt” from your parental family has given you great resolve to get into a good financial position – and you have. I hope that you are enjoying all of the peace, hope, and freedom that your financial wisdom should be paying out to you.